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Asoka Oil Mills and ors. Vs. Sales Tax Officer and ors. - Court Judgment

LegalCrystal Citation
SubjectSales Tax
CourtKerala High Court
Decided On
Case Number O.P. Nos. 5934, 6312, 6501, 6792, 9189, 9206, 9586, 9673, 9855, 10764 and 11060 of 1983 and 90, 257
Judge
Reported in[1985]58STC282(Ker)
AppellantAsoka Oil Mills and ors.
RespondentSales Tax Officer and ors.
Appellant Advocate T.L. Viswanatha Iyer,; N. Subramonian,; P.A. Mohammed (T
Respondent AdvocateGovernment Pleader
Cases ReferredMathra Parshad and Sons v. State of Punjab
Excerpt:
.....the year, a return in form 10 'showing his estimated total turnover and taxable turnover for the year'.rules 13 to 15 dealt with acceptance of returns and best of judgment assessments where returns were not submitted or where those submitted were incorrect or incomplete. under sub-rule (8) such returns were to be accepted, subject to sub-rule (9). the latter sub-rule authorised the assessing authority to accept or reject the return after scrutiny, and make a best of judgment assessment for the month or months involved. sub-rule (10) empowered the authority to cancel the permission granted and make a provisional assessment for the whole year, in case the dealer failed to furnish evidence of payment along with the returns, or if returns were not submitted. and the overall effect of this..........turnover for a year. purchase tax under section 5a is also geared to the taxable turnover for a year. 'turnover' means the aggregate amount for which goods are either bought or sold; and 'taxable turnover' means the turnover on which tax is payable, after permissible deductions. section 16(1) in chapter v, dealing with 'assessment, collection and penalty', provides that :the tax under this act shall be assessed, levied and collected in such manner as may be prescribed.section 17(1) obliges every dealer who is liable to pay tax under the act to submit 'such return or returns relating to his turnover in such manner and within such period as may be prescribed'. section 17(3) provides for best judgment assessments, where returns are not filed or where those filed are found to be incorrect.....
Judgment:

M.P. Menon, J.

1. The petitioners are assessees under the Kerala General Sales Tax Act, 1963. Section 18 of the Act providing for 'provisional assessment' was omitted from the statute with effect from 1st April, 1982 by the Kerala General Sales Tax (Amendment) Act, 1983 (Act 3 of 1983). The Rules framed under the statute were also amended to give effect to this change in policy, but Sub-rules (7) to (14) of Rule 21, authorising provisional monthly assessments, were retained with some minor modifications. And the contention of the petitioners is that these sub-rules cannot validly operate after 1st April, 1982 in view of the deletion of Section 18. The sub-rules are ultra vires the statute as it now stands, it is contended.

2. Ignoring details relating to classification of dealers, rates of tax and other matters, Section 5 of the K. G. S. T. Act requires every dealer to pay tax on his taxable turnover for a year. Purchase tax under Section 5A is also geared to the taxable turnover for a year. 'Turnover' means the aggregate amount for which goods are either bought or sold; and 'taxable turnover' means the turnover on which tax is payable, after permissible deductions. Section 16(1) in Chapter V, dealing with 'assessment, collection and penalty', provides that :

The tax under this Act shall be assessed, levied and collected in such manner as may be prescribed.

Section 17(1) obliges every dealer who is liable to pay tax under the Act to submit 'such return or returns relating to his turnover in such manner and within such period as may be prescribed'. Section 17(3) provides for best judgment assessments, where returns are not filed or where those filed are found to be incorrect or incomplete. The relevant provisions of Section 18, when the section was part of the enactment, were as follows :

18. Provisional assessment.-(1) The tax for each year payable under any of the provisions of this Act may be assessed and levied in advance during the year and for that purpose a dealer may be required to furnish within the prescribed period either an advance estimate of his turnover for the year or such periodical returns of the actual turnover as may be prescribed.

(1A) The assessing authority may determine the amount of tax payable in respect of any period under Sub-section (1) and on such assessment the dealer shall pay the sum demanded in monthly or other prescribed instalments within such time as may be fixed by such authority.

* * *(2) If no return is submitted by the dealer under Sub-section (I) within the prescribed period, or if the return submitted by him appears to the assessing authority to be incorrect or incomplete, the assessing authority may determine the amount of tax payable by the dealer in accordance with the provisions of Sub-section (3) of Section 17.

* * *(3) If the assessing authority has reason to believe that the provisional assessment made by it for any period was based on too low a turnover or was made at too low a rate or was based on too high a turnover or was made at too high a rate, it may enhance, or reduce, as the case may be, such provisional assessment:

* * *(4) The assessment, levy and collection of tax under this section shall be subject to such adjustment as may be prescribed on the completion of final assessment in the manner prescribed.

Section 23(1) provides that the tax assessed shall be paid in such manner and in such instalments, if any, and within such time, as may be specified in the notice of demand. Sub-section (3) of Section 23 provides for payment of penal interest :

If the tax assessed or any other amount due under this Act or any instalment thereof is not paid by any dealer or other person within the time specified therefor....

Section 34, as it originally stood, provided for appeals to the Appellate Assistant Commissioner against different classes of orders, including orders passed under Sub-sections (1) to (3) of Section 18; but this provision for appeal against provisional assessments under Section 18 was deleted from 1st April, 1982. Section 44 provides for refund if the assessing authority finds, 'at the time of final assessment', that a dealer has paid tax in excess of what is due from him. The other provisions of the Act are not very material for the present purposes.

3. Turning to the Rules which were in force before 1st April, 1982 the material provisions for levy, assessment and collection were to be found in Rules 12 to 21. Rule 12 dealing with 'submission of provisional returns' required a dealer to submit, on or before the 1st May of the year, a return in form 10 'showing his estimated total turnover and taxable turnover for the year'. Rules 13 to 15 dealt with acceptance of returns and best of judgment assessments where returns were not submitted or where those submitted were incorrect or incomplete. In substance, these rules provided for provisional fixation of the 'annual .tax' payable. Rule 16 provided for issue of demand notices on the basis of assessments made under Rules 13 to 16; the dealer was to pay 'the tax provisionally fixed for the year' in monthly instalments. Rule 18(1) required a dealer to submit, on or before the 1st May of every year, an annual return (i. e., a final return) in form 8, showing the total turnover and taxable turnover for the preceding year; and Sub-rules (4) and (5) provided for final annual assessment. Rule 20 provided for adjustment on the basis of the final assessment. Rule 21(1) provided that

In lieu of the method of assessment described in the foregoing rules, the method described in Sub-rules (2) to (12) of this rule may, on application, be permitted to be adopted by a dealer whose taxable turnover exceeds Rs. 20,000 a year.

Sub-rules (2) to (6) dealt with the procedure for obtaining the permission. Sub-rule (7) prescribed that when the permission was granted, the dealer was to submit, within 25 days thereof, a return in form 9 showing the total turnover and the taxable turnover for each of the preceding months, the amounts collected by way of tax during those months, and also the amounts of tax due on the taxable turnover. Along with the return, he was also to furnish evidence to show that he had paid the tax so payable. And thereafter, returns had to be submitted during the following months also in the same manner, along with evidence of payment. Under Sub-rule (8) such returns were to be accepted, subject to Sub-rule (9). The latter sub-rule authorised the assessing authority to accept or reject the return after scrutiny, and make a best of judgment assessment for the month or months involved. Sub-rule (10) empowered the authority to cancel the permission granted and make a provisional assessment for the whole year, in case the dealer failed to furnish evidence of payment along with the returns, or if returns were not submitted. Sub-rule (11) required this class of dealers also to submit in form 8 an annual return for the total turnover and taxable turnover for the preceding year, and pay tax in accordance with such return. Sub-rule (12) dealt with cases where dealers discontinued business during the course of the year. Sub-rule (13) provided for final assessment of this class of dealers, and Sub-rule (14), for necessary adjustments on that basis.

4. After the deletion of Section 18 from the Act, the above rules were also modified to some extent. Rules 12 to 18 dealing with provisional fixation of annualtax payable in advance, were completely deleted. Sub-rules (1) to (6) of Rule 21 were also deleted, and the result was that thereafter there was no question ,of getting permission to make provisional monthly payments during the year, by way of advance. Sub-rules (7) to (14) were however not deleted; they were retained with minor modifications. And the overall effect of this change in Rule 21 was that every dealer, irrespective of turnover and permission, had to submit monthly returns and make monthly provisional payment, more or less on the lines of the old Sub-rules (7) to (14). It is unnecessary to examine the surviving sub-rules in detail and extract them for the purpose, because the contention is that such rules providing for periodical provisional assessments during the course of the year, could not have survived the deletion of Section 18.

5. The argument is developed like this. Section 5 of the Act is the charging section, and it provides for a yearly or annual tax. It contemplates only one assessment, after the end of the financial year. Without anything more in the Act itself, the rules could not have provided for periodical or advance assessments during the currency of the year. Section 18 however specifically provided for such assessments, and under the rules, these assessments were of two kinds. One, a. provisional annual assessment under Rules 12 to 16, and two, monthly provisional assessments in lieu thereof, under Rule 21. Inasmuch as both were provisional assessments, and had to be related to the power conferred by Section 18 of the Act, the rule-making authority should have scrapped both the methods consequent on the deletion of the section. What they did however was to scrap only one of the methods, t. e., the one under Rules 12 to 16, while retaining and perpetuating the other, under Rule 21, making it applicable to all dealers and delinking it from the need for permission. Once Section 18 was out of the picture, this alternative method too should have been given up as it had no independent statutory support, it is contended.

6. The real question therefore is whether Section 18 of the Act was the sole repository of the power* of the executive to prescribe rules for monthly assessments, subject to the final assessment after the end of the financial year. Two propositions have to be borne in mind while considering this question. The first is that there is a distinction between the incidence, nature or character of a tax on the one hand, and the measure or machinery for its assessment and collection, on the other. The second is that the legislature is competent to delegate to the executive, at least part of its legislative functions. With regard to taxing statutes, there was once a view that fixing the rate of tax was an essential legislative function which could not be delegated at all [see Devi Dass Gopal Krishnan v. State of Punjab AIR 1967 SC 1895 but the rigour of this rule has since been relaxed [see N. K. Papiah v. Excise Commissioner AIR 1976 SC 1007 and other cases discussed therein]. Even the most inveterate opponents of delegated legislation will, at any rate, agree that where a taxing statute identifies the subject of the tax and also the rate to be levied, many of the other details can be left to the rule-making authority. Viewed in this background, Section 5 of the Act can be construed as specifying three things:

(i) the nature of the tax: it is a tax on the turnover of a dealer, i, e., a tax on the value of goods bought or sold;

(ii) the rate of tax : the rates are specified in Clauses (i) and (ii) of Sub-section (1); and

(iii) the unit of time with reference to which the dealer's liability is to be finally ascertained; the financial year.

Does it follow from (iii) above that there could be no ascertainment of the dealer's liability from time to time, during the course of the financial year itself, even on. a provisional basis, and subject to finalisation after the end of the financial year In our opinion, ascertainment of liability pertains to the realm of assessment or of machinery, and the method of assessment can be separately indicated either by the statute or by the Rules framed under it. The statute in this case contains a separate chapter dealing with this subject, namely, 'assessment and collection'. As noticed earlier Section 16(1) provides that the tax payable under the Act is to be assessed, levied and collected in such manner as may be prescribed; and Section 17(1) similarly provides that returns relating to turnover are also to be submitted in the manner and within the , period prescribed by the Rules. This power to prescribe the manner of assessment and collection carries with it the power to provide for periodical provisional assessments also, subject of course to the stipulation in Section 5 that the final assessment or ascertainment shall be with reference to the financial year. The power to frame rules for assessment and collection includes the power to make rules for provisional assessment and provisional collection, unless the statute denies such power expressly or by necessary implication If the provisions of Section 5 are to be construed as authorising only one assessment and one collection, the provisions of Section 23 permitting payment of tax 'in such manner and in such instalments as may be specified in the notice of demand' will become meaningless. A notice of demand cannot provide for payment in instalments, if the legislative policy disclosed by Section 5 is to be confined to a single assessment and consequently to collection at a single stroke. Again, when Section 44 specifically refers to a 'final assessment' and adjustment of accounts on its basis, it has to be necessarily inferred that the legislature was thinking in terms of provisional assessments and provisional collections before the final ascertainment or the final settlement of accounts for a year. Section 5 cannot be read in isolation; and when it is read along with Sections 16, 17, 23 and 44 the position seems to be clear that the legislature was contemplating specific conferment of power on the rule-making authority to frame rules for provisional assessments. And Section 57(1), in particular, confers power on the executive 'to make rules to carry out the purposes of this Act'.

7. The petitioners rely on the decision of the Madras High Court In re Kumaraswami Raja [1955] 6 STC 113. Section 3(1) of the Madras General Sales Tax Act, 1939 required every dealer to 'pay for each year a tax on his total turnover for such year'. Sub-sections (4) and (5) of Section 3 provided for making of rules for determination of turnover, and also for assessment, levy and collection 'in such manner and in such instalments as may be prescribed'. The Court held that in the absence of a specific provision in the Act itself authorising the making of rules for provisional or advance assessment and collection of the tax so assessed, the provisions of the Turnover and Assessment Rules relating to such assessment and collection were inconsistent with Section 3(1), or ultra vires the Act. Rajamannar, C. J., said :

While I agree that once the tax has accrued in accordance with the charging section, the rules can provide for the assessment, levy and collection of the tax in such manner as the Government may consider proper and expedient, I fail to see how when the charging section says that every dealer shall pay for a financial year sales tax on his total turnover for such year, he can be asked to pay before the year has elapsed and therefore the total turnover cannot be ascertained, a provisional tax calculated on an estimated turnover. I quite realise that the legislature might have made such a provision in the Act itself. An apposite analogy is furnished by section ISA of the Indian Income-tax Act. But in the absence of any such provision in the Act itself, a rule cannot go beyond the Act and make the dealer pay a tax provisionally calculated on an estimated turnover. The objection is not met by reference to the provision in the . rules for final adjustment.

The Travancore-Cochin High Court, however, took a different view of the matter in In re Hamsa Koya [1957] 8 STC 18 wherein Kumara Pillai, J., said :

The scheme of the Sales Tax Act is entirely different. Sales tax is levied not in respect of the turnover for the previous year but in respect of the turnover of the year for which the tax is levied. The argument that since the tax for the year is on the turnover for that year the taxing authority should in all cases wait till the close of the year and is not competent to make in any case an assessment before the close of the year because the turnover of the year cannot be ascertained before the close of the year also appears to us to be far-fetched. To take an illustration about which there can be no dispute, if a dealer winds up his business long before the close of the year and his turnover for that year can thereby be ascertained before the close of the year why should the sales tax authorities wait to make the assessment on him till the year is over In this connection reference has also to be made to Clauses (4) and (5) of Section 3 and Clause (2)(a) of Section 24. Clauses (4) and (5) of Section 3 read :

(4) For the purposes of this section and the other provisions of this Act, turnover shall be determined in accordance with such rules as may be prescribed.

(5) The taxes under Sub-sections (1) and (2) shall be assessed, levied and collected in such manner and in such instalments, if any, as may be prescribed.'

Clause (2)(a) of Section 24 reads :

'Power to make rules.--(1) Government may make rules to carry out the purpose of this Act.

(2) In particular and without prejudice to the generality of the foregoing power, such rules may provide for :

(a) all matters expressly required or allowed by this Act to be prescribed.'

Under these three provisions the Government has the power to frame rules as to how the turnover is to be ascertained, the manner of the assessment, levy and collection of the tax, and for assessing, levying and calculating the tax in such manner and such instalments as they deem fit. As the provisional assessment under Rules 10 and 11 are subject to the final assessment under Rule 14 and final adjustment under Rule 15, the rules for making provisional assessments are nothing more than provisions for making the assessment for the year and the levying and the collection of tax in instalments.

These sections read with Section 3(1)(a) confer upon Government ample powers for making the rules to enable provisional assessments subject to final assessment and for determining the turnover for the purpose of the provisional assessments. Considering the scheme of the Sales Tax Act which is quite unlike the scheme of the Indian Income-tax Act and the provisions referred to above we are of the opinion that there is nothing in Section 3(1)(a) of the Sales Tax Act which renders a provisional assessment on an estimated turnover subject to a final assessment and adjustment on the basis of the final assessment illegal or contrary to the spirit of the Act, and that such provisional assessments appear to have been contemplated by the legislature and are in keeping with the spirit of the charging section.

We are of the view that on a proper reading of Sections 5, 16, 17 and 57(1) of the K.G.S.T. Act, a similar conclusion can safely be reached, and that the above provisions of the statute are more than sufficient to support Sub-rules (7) to (14) of Rule 21 as they now stand.

8. The decision of the Supreme Court in Mathra Parshad and Sons v. State of Punjab AIR 1962 SC 745 is also of some assistance. On 27th September, 1954 the Punjab Government issued a notification under the East Punjab General Sales Tax Act, 1948 exempting manufactured tobacco from sales tax, and the question was whether the exemption could operate only from the date of the notification, or from the beginning of the financial year. The assessees contended that sales tax was a yearly tax and that the exemption should enure from the beginning of the year. The stand of the State was that the exemption could be claimed only from the date of the notification. The majority of the Constitution Bench accepted the case of the assessees, while Kapur, J., alone dissented. Section 5 of the Act required a dealer to pay tax on the 'taxable turnover every year'. Section 10 provided that the tax payable under the Act was to be paid 'in the manner hereinafter provided at such intervals as may be prescribed'. Rule 20, framed under Section 27 of the Act, contemplated quarterly payment of tax by certain classes of dealers, when so permitted. And Rule 23 authorised the assessing authority to call for monthly return even from this class of dealers, for reasons to be recorded in writing. Examining the above and other relevant provisions of the Act and the Rules, the majority said :

There is no doubt that the tax is a yearly tax. It was payable, in the first instance, by a dealer whose gross turnover during the financial year immediately preceding May 1, 1949 was above the taxable quantum. The tax is to be levied on the taxable turnover of a dealer every year. The difference between gross turnover and taxable turnover is this, that to arrive at the taxable turnover of any period some deductions have to be made for the same period. This clearly shows that the tax is for a year. The method of collection allows collection -of tax at intervals; in some cases, the tax is collected at the end of the year; in some others, the tax is collected quarterly and in still other cases, even monthly. If the exemption can be said to operate for that period for which the tax is payable according as it is annually, quarterly or mothly, the tax would be different for different persons. Those who are paying the tax annually would get exemption for the whole year; but those who are paying it quarterly or monthly would get benefit in the quarter or the month of the notification but not for earlier quarters or months. It could not have been intended that the exemption was to operate differently in the case of dealers with different intervals of assessment.

What is relevant for our purpose is to notice that though the tax was understood as a yearly tax, collection at intervals, and that too before the close of the financial year, was held possible and permissible as the rules had provided for such collection. It was not held that because the charging section had provided only for a yearly tax, the rules could not have provided for collection at different intervals during the course of the year itself. Section 10 had clearly authorised the rule-making authority to prescribe the intervals at which tax was payable, and that was sufficient to support Rules 20 and 23 providing for periodical assessments and .collections in advance.

9. It is contended that the State may grant exemptions or reduce the rate of tax in exercise of power under Section 10 of the K.G.S.T. Act during the, middle or just before the end of a financial year, and that the system of monthly assessment and collection would impose an unnecessary and heavy burden on some of the assessees for a major part of the year. Reference is also made to the amendment to Section 34 taking away the right of appeal against provisional assessments under Section 18. These practical difficulties cannot affect the validity of the Rules. It is possible that despite the amendment to Section 34, appeals could still lie against provisional assessments under Rule 21, as they are assessments or orders within the meaning of Section 17. In any event, the remedy by way of revision will be available. It is also to be mentioned that provisions for adjustment after the final assessments, and for appeals against such assessments, still continue to be there.

10. The question is then posed as to why Section 18 was placed in the statute book and retained there all the time, if the rule-making authority had power under the other provisions of the Act to prescribe rules for provisional assessment. The easiest answer to furnish is that we are not concerned with what prompted the legislature to incorporate such a provision at some stage and withdraw it later, we are now only concerned with the question whether Sub-rules (7) to (14) of Rule 21 could stand without the support of Section 18. And that question has already been answered. If any further enquiry is required at all, we would venture to suggest that the two methods which were in existence before 1st April, 1982 were different in character. In a provisional assessment under Rules 12 to 15 as they stood before the above date, the dealer had to estimate his turnover for the whole year almost at the beginning of the year, and accept the liability to pay the tax in advance. But for Rule 16 which authorised the assessing authority to permit payment in monthly instalments, the dealer could have been called upon to pay the entire tax for the whole year, in advance. On the other hand, payments under Rule 21 had to be made only after the end of each month, i.e., after collecting the tax from the consumer. The risks and the degrees of responsibilities would have been higher under the first method, but for Rule 16. The legislature might have found that assessment and collection of the entire tax for a year in advance, as contemplated by Section 18(1) read with Rules 12 to 15, had become an unworkable proposition in view of Rule 16 which, like Rule 21, also provided for monthly payments. It is possible that under the above circumstances, the legislature might have thought of giving up the scheme for provisional determination of 'annual tax', in favour of monthly assessment and collection, with the difference that what once depended on grant of permission was converted into a facility available for all, independent of any permission. The scheme of Section 18 of the Act, read with Rules 12 to 15, was to provisionally collect the tax in advance for the whole year. But Rule 16 had almost made a dead letter of this scheme; the rule was practically operating in the same field as Rule 21. We reiterate that we are only venturing some explanation; probably, the State had other reasons also to follow the course it has chosen.

11. It was contended that Act 3 of 1983 was enacted to give effect to the report of an expert Committee which had recommended the abolition of provisional assessments altogether, so that the assessing authorities could devote their full time for final assessments, and that the Finance Minister had made a policy statement in this regard in the budget speech. The retention of Sub-rule (9) of Rule 21 at least, it was urged, was inconsistent with this policy. All that we need say is that if at all there was such a policy, the amendments made to the Act and the Rules fall short of giving effect to it; such policy considerations can also have no place in examining the vires of the rules as they now stand.

12. Another approach which the counsel wanted us to adopt is that Section 18 had provided for both provisional annual assessments and provisional periodical assessments, and that Rule 21 was intended as the machinery for the latter. That may or may not be so; but the question now for decision is whether Sub-rules (7) to (14) of Rule 21 could stand in the absence of Section 18. And on that, we have already expressed ourselves.

13. Even Rajamannar, C. J., was prepared to agree, in In re Kumaraswami [1955] 6 STC 113, that once the tax had accrued under the charging section, the Rules could provide for assessment, levy and collection in such manner as was found expedient. And in view of Mathra Parshad AIR 1962 SC 745, there could be no doubt that the liability to pay sales tax could accrue at intervals if the rules so prescribe, despite the circumstance that the tax is a yearly tax. What Sub-rules (7) to (14) of Rule 21 prescribe is that a return for the turnover of a month should be submitted during the following month and that the tax payable in accordance with the return should also be paid. The rules thus contemplate assessment and collection only after the liability, has accrued. What the petitioners really want is that they should be allowed to retain with them, till final assessment and demand, the entire tax they collect from the customers from time to time. This is the mischief that Rule 21 seeks to prevent, and as already explained, there are enough provisions in the Act, even after the deletion of Section 18, to authorise such a prescription.

14. We are of the view that the rules impugned are valid. The original petitions are accordingly dismissed, but without any order as to costs. However, having regard to the circumstance that the financial year has come to a close and that orders of stay were in force all the while, we would direct that further steps for collection of tax from the petitioners under the amended Sub-rules (7) to (14) of Rule 21 will be kept in abeyance till final assessments are made for the year, if the petitioners have complied with the terms of the stay orders. Of course, collection after such final assessments can only be on their basis.


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